Property tax reform has been a central issue in the state legislature in previous sessions, but a lack of progress still leaves Texans as some of the highest payers in property tax in the nation.
According to a new Wallethub study, Texas ranks as the fourth highest percentage of property taxes paid to the government.
Texas is one of seven states that does not have a state income tax, which leaves the Lone Star State relying heavily on property taxes to fund programs such public education and local governments.
“Governments need revenue, and they collect it from different sorts of taxation,” said Jill Gonzalez, an analyst at Wallethub. “In Texas, the local government relies heavily on real estate taxes. The advantage of this type of taxation is that it is fixed in location, as opposed to income tax that can be shifted to lower tax states.”
Gonzalez said the amount of property tax revenue collected gets higher as property values increase. However, considering that no other taxation has been enforced in Texas, property taxes alone must be enough to support local governments.
The addition of a state income tax could burden Texas citizens as property taxes are some of the highest in the country. However, a drawback on reliance from property tax revenue with the implementation of a state income tax could balance things out.
In January, Governor Greg Abbott outlined a plan to alleviate concern over “skyrocketing property taxes,” which includes a cap of no more than 2.5 percent growth in the property tax rate. Any higher would need voter approval.
“The addition of income tax would not bring with it a lowering of property taxes, and would therefore only burden residents even more,” Gonzalez said. “This could result in people failing to pay their taxes, which would consequently lead to a drop in revenues for the local government.”
For Rebecca Minnick, a real estate agent in Wimberley, working with out-of-state buyers can prove to be difficult when clients learn how high the property taxes are.
“These buyers come here and think that they’ll get a whole lot for their money, which to some extent is true,” Minnick said. “Land and utilities are cheaper, but property tax is the big offset here.”
Minnick said she recently had an out-of-state client who was looking to buy property in Texas, but ultimately decided to purchase property in Tennessee, where the property taxes are significantly lower.
From her experience as a realtor, Minnick said the middle class suffers the most from high property taxes.
“If you want to upgrade from a ‘starter home’ to a larger piece of property, that can prove to be difficult when property taxes are put in the mix,” Minnick said. “A $500,000 home can easily run your property taxes up to $10,000 a year. And to those looking to upgrade, that could be a real deterrent.”
According to the Wallethub report, Texas has consistently had some of the highest property tax rates in the country since 2010. The annual taxes on a $185,000 home is $3,435 a year. In Texas, where the median home value is $142,700, residents with appraised homes in this price range can expect to pay around $2,654 a year on property taxes.
“The younger generation will be the first generation to not be as successful as their parents, and we might see a shift in how people value home ownership,” Minnick said. “Property taxes may not be a deal killer for all, but it is for some.”